Hotels hit market as pub sector heats up

The Royal Hotel in Melbourne's Sunbury, leased to Woolworths-backed operator ALH Group, is to be offloaded by a private NSW investor, hot on the heels of another ALH-operated pub, the Berwick Inn, hitting the market.

The Royal, on Melbourne's northern outskirts, is expected to snare about $8 million, while the two-storey Berwick Inn in the eastern suburbs is likely to trade for about $25 million.

JLL's Mathew George, the Royal's selling agent, said few ALH-leased pub in the sub-$10 million bracket had been offered in Melbourne over the past decade.

"Comparable ALH and Coles-tenanted investment hotels in prime locations such as this have been keenly sought by purchasers in recent years, but very rarely do they hit the open market," he said.

The Royal returns $367,000 in net rent from the pub's business and 31 gaming machines.

The Berwick Inn, marketed by CBRE, is the first major asset to be sold by Australia's largest listed freehold pub owner, ALE Property Group, in seven years.

Apart from selling the Victoria Hotel in Shepparton for $4.5 million three years ago, ALE has not undertaken major transactions since 2009 and 2010, when it offloaded 17 venues.

The group recently cited the $22 million sale of a Dan Murphy's in Alphington on a sharp yield as justification for bringing the Berwick pub to market.

ALE owns 86 freehold pubs around Australia worth more than $1 billion, with an average capitalisation rate of 5.14 per cent.

The popularity of the sector has seen private operators and investors pay record prices for east-coast pubs over the past three years.

The freehold of two ALH-leased pubs, the Seaford Hotel and Royal Ferntree Gully Hotel, were sold in early 2016 for yields between 6 and 6.3 per cent.

Prices are likely to have sharpened since, Mr George said.

The Seaford fetched $40 million and Royal Ferntree Gully went for $24 million.

Sydney's freehold pub market has been particularly bullish with about $650 million in top-tier pubs changing hands over the past 18 months in 26 separate transactions.

The freehold of the Clovelly Hotel, in Clovelly NSW, leased by a non-ASX-listed tenant, sold in September for $34 million on yield of about 5 per cent.

CBRE's 2017 Australia Pub Trends report suggest hotels in NSW are outperforming all other property sectors in the state.

Reduced availability of metropolitan stock in Sydney, as well as tightening yields, was pushing investors to coastal and regional locations to secure quality assets, the report says.

Demand in Victoria was outweighing supply.

A lower supply of traditional metro freehold pubs has compressed yields to between 4 and 6 per cent, with regional pubs between 8 and10 per cent.